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Peter Bernstein: The Importance of Staying Power

March 19, 2021

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Jon

The behavioral side of investing gets a lot of attention while the personal finance side often gets less than it deserves. That’s because how defensive you are with your finances helps determine how aggressive you can be with your portfolio. Put simply, it’s easier to roll with the market’s punches when everything outside your portfolio is in financially sound shape.

Peter Bernstein dwells on the impact of being wrong on investments because the consequences can go beyond losses. The nature of investing guarantees everyone will be wrong sometimes. That means unexpected gains in some cases (being wrong isn’t all bad) and losses in others.

How quickly you can recover from losses will have a big impact on your long-term wealth. There’s an obvious psychological hurdle to recovering from losses but the state of your finances impacts your ability to recover too. Bernstein calls it “staying power.” Continue Reading…
Deep Value by Tobias Carlisle

March 17, 2021

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Buy the Book: Print | eBook

Deep Value explains, through numerous case studies and backed by data, why the counterintuitive approach of a traditional (deep) value strategy uncovers the most promising investment opportunities with limited risk.

The Notes

Continue Reading…
Repeated Mistakes

March 12, 2021

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Jon

Mistakes are the bane of investor performance. Naturally, the idea that avoiding errors improves performance is simple enough but our behavior often gets in the way.

There’s a reason why some of the best investors ever are often the most humble. Pride is an obstacle investors need to overcome before improvement happens.

The fact is humans are fallible. Mistakes are inevitable. The great ones accept it, are critical of their own when needed, learn what they can, and move forward.

With pride out the way, finding the recurring mistakes should be easier, right? But again, another obstacle called time gets in the way. Rarely is the same mistake made one decision after another until it’s recognized and removed. And investment decisions are rarely made in rapid succession either.

There’s the old adage that bull and bear markets are just far enough apart that investors forget how the last one ended. Well, similar mistakes have a distance between them too. It makes it difficult to remember the last time the mistake was made. Which can lead to repetition. Continue Reading…
Lessons in a 1938 Letter from Keynes

March 10, 2021

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Jon

1937 was the first major market crash since the big one in 1929. The U.S. stock market peaked in March 1937 then sank about 50% over the next year. I’m sure the thought of a repeat of 1929 was in the back of a few investor’s minds at the time.

In fact, John Maynard Keynes may have been dealing with someone who was fighting that last war. Keynes served on the board of National Mutual. He believed the insurance company should hold a higher weighting in stocks than what was typical of the time. Though, not all board members agreed.

The disagreement grew louder as the U.S. market sank from 1937 to 1938 and dragged National Mutual’s portfolio down with it. By March of 1938, F. N. Curzon, the acting chairman in Keynes’s absence, had enough. He pushed to liquate some stock holdings. Then he fired off a letter criticizing Keynes’s investment policy over the previous few months.

Keynes’s reply came a few days later: Continue Reading…
Lessons from Charlie Munger at the Daily Journal Meeting

March 5, 2021

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Jon

Charlie Munger held court at the Daily Journal Annual Meeting last week. He answered questions for almost two hours. These were a few lessons to take away from it.

On behavior in market booms.

You get crazy booms. Remember the Dotcom boom? When every little building in Silicon Valley rented at a huge price and a few months later, about a third of them were vacant. There are these periods in capitalism and I’ve been around for a long time and my policy has always been to just ride them out…

In fact, what shareholders actually do is a lot of them crowd in to buying stocks on frenzy, frequently on credit because they see that they’re going up, and of course that’s a very dangerous way to invest. I think that shareholders should be more sensible and not crowd into stocks and buy them just because they’re going up and they like to gamble.

The risk in the ensuing stock crash is that emotions trigger a host of actions that feel just as right as when stock prices were rising but ultimately end up being costly. It’s a story repeated throughout history. Continue Reading…
Lessons from the 2020 Berkshire Letter

March 3, 2021

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Jon

Warren Buffett’s annual letter to shareholders was released this past weekend. Like previous letters, it’s filled with several lessons and great reminders for investors. Let’s dive in.

Even the Best Investor Makes Mistakes

The final component in our GAAP figure – that ugly $11 billion write-down – is almost entirely the quantification of a mistake I made in 2016. That year, Berkshire purchased Precision Castparts (“PCC”), and I paid too much for the company. No one misled me in any way – I was simply too optimistic about PCC’s normalized profit potential…

I believe I was right in concluding that PCC would, over time, earn good returns on the net tangible assets deployed in its operations. I was wrong, however, in judging the average amount of future earnings and, consequently, wrong in my calculation of the proper price to pay for the business. PCC is far from my first error of that sort. But it’s a big one.

Every investor loves to tout their winners. Nobody likes to talk about their losers. Well, almost nobody. Continue Reading…

Peter Bernstein: The Importance of Staying Power

Deep Value by Tobias Carlisle

The Notes

Repeated Mistakes

Lessons in a 1938 Letter from Keynes

Lessons from Charlie Munger at the Daily Journal Meeting

Lessons from the 2020 Berkshire Letter